Munich has successfully defended its lead in the latest office market scoring of IVG. This is the upshot of the IVG Germany Report published today. “Given the low number of completions and the decline in vacancies in the city, Munich is one of the few locations where rent increases in the core segment are to be expected,” said Dr. Thomas Beyerle, Head of CS & Research at IVG.
At 4.23 out of a possible score of 5 points, the Bavarian state capital remained ahead of Hamburg (4.16), Frankfurt (3.85), Cologne (3.84), Berlin (3.82), and Stuttgart (3.81). Last among Germany’s “Big Seven” was Düsseldorf with a 3.79 score.
At considerable distance, the leading Grade B locations followed in ranks 8 and lower, led by Hanover (3.46), Nuremberg (3.20), and Wiesbaden (3.02). The bottom of the list is made up by small, barely developed office locations in economically undeveloped regions. Last among the 74 office locations analyzed, Gera and Halle an der Saale (each scoring 1.59) brought up the rear, slightly behind Cottbus and Salzgitter (each 1.63). “Aside from the small size of the markets, the unfavorable rankings are in most cases explained by a negative growth perspective, a low degree of market transparency, and high office vacancy rates,” elaborated Beyerle.
Office Real Estate: Sound Returns in Regional Centers
Given the short supply in the core segment, a continued if temporary dip in prime initial yields in major locations cannot be ruled out, according to IVG. However, comparatively high yield rates – coinciding with a constant cash flow – are available to investors in secondary locations of the “Big Seven” cities or in prime locations of regional centers in the form of modern, occupied office schemes. Also attractive in these locations are project developments, as these tend to have a high forward commitment rate.
IVG Research’s idea of a sensible strategy for bypassing high price level envisions an expansion of the risk-adjusted investment behavior to include project developments complete with a stringent asset management approach. Much riskier, by contrast, are investments in vintage properties, in modern but vacant buildings, or the acquisition of speculative new buildings. “In the year before us, we expect investment strategies that may be summed up as ‘value-add’ to gain considerably in significance. A keen sensibility for the professional relation to yields and risks is being appreciated again,” said Beyerle to sum up the anticipated market development.